Total Fair Value Swap

ABSTRACT

A synthetic instrument known as a “Total Fair Value Swap” is disclosed. According to one embodiment, the Total Fair Value Swap may comprise an agreement between two counterparties, a “Fixed Rate Payer” and a “Floating Rate Payer”. According to the agreement, the Fixed Rate Payer makes a stream of payments to the Floating Rate Payer based on a fixed rate, and the Floating Rate Payer makes a second stream of payments to the Fixed Rate Payer based on a floating rate, wherein a first portion of the floating rate is based on a reference interest rate, and wherein a second portion of the floating rate is based on a credit spread associated with the Floating Rate Payer. The reference interest rate may be, for example, London Inter-Bank Offer Rate (LIBOR), prime interest rate, the US dollar swap rate, the U.S. Treasury Bond rate or any other widely traded interest rate that is reset periodically. The credit spread may be observed from the Credit Default Swap (CDS) market.

CROSS-REFERENCE TO RELATED APPLICATIONS

This application is a continuation of U.S. patent application Ser. No.13/113,425, filed May 23, 2011, which is a continuation of Ser. No.12/505,171, filed Jul. 17, 2009, which is a divisional of U.S. patentapplication Ser. No. 11/342,559, entitled “Total Fair Value Swap,” filedJan. 31, 2006, which claimed priority to U.S. Provisional PatentApplication Ser. No. 60/715,576, filed on Sep. 12, 2005. Each of theseearlier applications is incorporated herein by reference in itsentirety.

FIELD OF THE INVENTION

The present invention relates generally to financial instruments. Moreparticularly, the present invention relates to a synthetic instrumentreferred to as a “Total Fair Value Swap.”

BACKGROUND OF THE INVENTION

Apart from issuing equity securities, corporations can fund themselvesby issuing long-term and/or short-term debt. In the long-term debtmarket, a company can issue one or more fixed-rate bonds to investorsfor a tenor of 2-30 years, for example. During the term of a fixed-ratebond, the company makes periodic coupon payments to the bondholdersbased on a fixed interest rate. In the short-term debt market, a companycan issue short-term floating-rate instruments or commercial paper whichprovide short-term liquidity, wherein the interest rates may be reset,for example, on a weekly, monthly or quarterly basis.

Historically, floating-rate funding has been (almost invariably) cheaperthan fixed-rate funding. However, long-term funding provides acorporation with greater certainty as to cash flow. There is significantdemand for the low cost offered by floating-rate funding to be combinedwith the certainty offered by fixed-rate funding. No existing financialinstrument appears to meet that demand.

In view of the foregoing, it would be desirable to provide a fundingsolution which overcomes the above-described deficiencies andshortcomings.

SUMMARY OF THE INVENTION

One embodiment of the present invention comprises a synthetic instrumentreferred to as a “Total Fair Value Swap.” The Total Fair Value Swap maycomprise an agreement between two counterparties, a “Fixed Rate Payer”and a “Floating Rate Payer”. According to the agreement, the Fixed RatePayer may make a first stream of payments to the Floating Rate Payer,wherein the first stream of payments may be based on either a trulyfixed interest rate or a reference rate that is periodically reset. TheFloating Rate Payer may make a second stream of payments to the FixedRate Payer based on a floating rate, wherein a first portion of thefloating rate is based on a reference interest rate, and wherein asecond portion of the floating rate is based on a credit spreadassociated with the Floating Rate Payer. The reference interest rate maybe, for example, London Inter-Bank Offer Rate (LIBOR), prime interestrate, the US dollar swap rate, the U.S. Treasury Bond rate or any otherwidely traded interest rate that is reset periodically. The creditspread may be observed from the Credit Default Swap (CDS) market.

Additional features and advantages of the invention will be set forth inthe description that follows. The objectives and other advantages of theinvention will be realized and attained by the system and methods,particularly pointed out in the written description hereof as well asthe appended drawings.

Another embodiment of the present invention resides in a computer-basedfinancial system for facilitating a Total Fair Value Swap transactionbetween a first counterparty and a second counterparty. The system maycomprise means for interfacing the first and second counterparties tothe system. The system may also comprise database means for storing andmaintaining records related to the Total Fair Value Swap transaction,the records reflecting the first counterparty's obligation to make oneor more fixed payments to the second counterparty and the secondcounterparty's obligation to make one or more floating payments to thefirst counterparty, wherein the one or more fixed payments are based ona reference interest rate and the one or more floating payments arebased at least in part on a credit spread associated with the secondcounterparty. The system may further comprise rate monitoring means forderiving the credit spread from a credit default swap market and forperiodically determining the floating payment amount based at least inpart on the credit spread. The system may additionally comprisetransaction management means, operatively coupled to the means forinterfacing, the database means and the rate monitoring means, fortracking the one or more fixed payments and the one or more floatingpayments.

A further embodiment of the present invention resides in acomputer-implemented method for facilitating a Total Fair Value Swaptransaction between a first counterparty and a second counterparty. Themethod may comprise the steps of: maintaining an electronic recordrelated to the Total Fair Value Swap transaction, the record reflectingthe first counterparty's obligation to make one or more fixed paymentsto the second counterparty and the second counterparty's obligation tomake one or more floating payments to the first counterparty;calculating an amount for each fixed payment based on a referenceinterest rate; deriving, from a credit default swap market, a creditspread associated with the second counterparty at a specified time priorto each floating payment; determining an amount for each floatingpayment based at least in part on the credit spread; and managing theone or more fixed payments and the one or more floating payments.

The present invention will now be described in more detail withreference to exemplary embodiments thereof as shown in the accompanyingdrawings. While the description below makes reference to exemplaryembodiments, it should be understood that the present invention is notlimited thereto. Those of ordinary skill in the art having access to theteachings herein will recognize additional implementations,modifications, and embodiments, as well as other fields of use, whichare within the scope of the present invention as described herein, andwith respect to which the present invention may be of significantutility.

BRIEF DESCRIPTION OF THE DRAWINGS

The purpose and advantages of the present invention will be apparent tothose of skill in the art from the following detailed description inconjunction with the appended drawings in which like referencecharacters are used to indicate like elements.

FIG. 1 is a block diagram illustrating an exemplary Total Fair ValueSwap transaction according to an embodiment of the present invention.

FIG. 2 is a block diagram illustrating another exemplary Total FairValue Swap transaction according to an embodiment of the presentinvention.

FIG. 3 shows the economics of the exemplary Total Fair Value Swaptransaction as illustrated in FIG. 2.

FIG. 4 is a block diagram illustrating an exemplary system forfacilitating one or more Total Fair Value Swap transactions inaccordance with an embodiment of the present invention.

FIG. 5 is a flow chart illustrating an exemplary method for facilitatinga Total Fair Value Swap transaction in accordance with an embodiment ofthe present invention.

Reference will now be made in detail to the present embodiments of theinvention, examples of which are illustrated in the accompanyingdrawings.

DETAILED DESCRIPTION OF THE INVENTION

To provide a more satisfactory funding solution to an entity,embodiments of the present invention introduce a new type of syntheticinstrument known as a “Total Fair Value Swap.” A Total Fair Value Swapmay be a single swap transaction wherein the floating payment is afunction of both interest rates and the perceived creditworthiness of aborrower (its “credit spread”). The purpose of a Total Fair Value Swapis to permit a borrower to obtain long-term funding at a floating rateof interest through the use of a single financial instrument.Previously, it would have been possible to achieve this result onlythrough a combination of interest rate and highly illiquid creditdefault swaps. A Total Fair Value Swap may be entered into between twocounterparties, a “Fixed Rate Payer” and a “Floating Rate Payer”. AFloating Rate Payer in the swap may be an organization that needsfunding, such as a public corporation, a private firm, a partnership, alimited liability company (LLC), or a municipality. For illustrationpurposes, this Floating Rate Payer is generally referred to as “Company”in the description below. The Fixed Rate Payer in the swap is typicallya financial services provider such as an investment bank or a similarfinancial institution. This Fixed Rate Payer is referred to as “Bank” inthe description below. Theoretically, any two persons or entities mayparticipate in a Total Fair Value Swap as long as their participationdoes not violate any applicable rules or regulations.

Referring to FIG. 1, there is shown a block diagram illustrating anexemplary Total Fair Value Swap transaction according to an embodimentof the present invention.

A Total Fair Value Swap may be entered into by a Company either at thetime such Company issues bonds or at any time thereafter. Furthermore,despite the illustrations in FIG. 1 and FIG. 2, issuance of a bond orother debt instrument by Company is not a precondition for entering intoa Total Fair Value Swap in accordance with embodiments of the presentinvention.

In a typical scenario, Company may issue a bond to its investors, payinga fixed-rate coupon on a periodic basis. The Total Fair Value Swapbetween Company and Bank may involve two payment streams. The swapcontract may be documented on the basis of standard derivativesdocumentation, such as that produced by the International Swaps andDerivatives Association, Inc. (ISDA). The Total Fair Value Swap may havea notional principal that is the same as or proportionate to the bondprincipal. Bank may agree to make fixed payments to Company based onsuch notional principal on a periodic basis. In return, Company mayagree to make floating payments to Bank based on such notional principalon a periodic basis.

In the context of a Total Fair Value Swap, the term “fixed payments” mayrefer to payments with a truly fixed amount throughout the term of theswap, or the term “fixed payments” may refer to payments whose amountsare based on a reference rate as agreed upon by parties to the swap.According to one embodiment, the reference rate may be a fixed interestrate that is the same as or proportionate to the fixed-rate bond coupon.Alternatively, the reference rate may be a market interest rate or onethat is reset periodically in a manner prescribed by the swap contract.

The floating payments in the Total Fair Value Swap may be based on afloating rate that comprises two portions, a first portion being basedon a reference interest rate and a second portion being based onCompany's credit spread. The reference interest rate may be any publiclyquoted rate that can be used by parties to a financial contract. In aTotal Fair Value Swap, a typical reference interest rate may be, forexample, LIBOR rate, prime interest rate, the U.S. dollar swap rate, theU.S. Treasury Bond rate or any other widely traded interest rate that isreset periodically, or a variant or combination thereof. For example, ifpayments are made every six months between Company and Bank, the 6-monthLIBOR rate at the beginning of every 6-month period may be used as thereference interest rate.

The credit spread portion of the floating rate may be based on Company'scredit spread as observed from the CDS market. A credit spread typicallyreflects the likelihood that a company will default on its debts. Acredit default swap is a contract that protects a party to the contractagainst the risk of a default by a particular company. In the CDS marketwhere these contracts referencing various entities are traded, acompany's credit risk may be observed and quantified with a priceindicator known as a “credit spread.” Companies with higher creditspreads are required to pay a correspondingly higher risk premium (i.e.,a higher interest rate) to purchasers of their debt securities and otherlenders. To be eligible for a Total Fair Value Swap, Company istypically required to have a verifiable credit spread for apredetermined number of years. According to one embodiment, it ispreferable that Company has verifiable 5-year and 10-year creditspreads. Company's credit spread may be obtained from the CDS market andmay be adjusted on a periodic basis. For example, if payments are madeevery six months between Company and Bank, a snapshot of Company's5-year credit spread may be taken in the CDS market at the beginning ofeach 6-month period. This credit spread value may be used to determinethe credit spread portion of the floating rate in the Total Fair ValueSwap. Therefore, the amount of Company's floating-rate payments to Bankis, at least in part, based on Company's own credit risk at or aroundthe time of each payment. Calculation of the credit spread portion ofthe floating rate may be done with a standard or proprietary pricingmodel that is capable of pricing Constant Maturity CDS transactions.

According to embodiments of the present invention, the credit spreadportion of the floating rate in the Total Fair Value Swap may be set ata percentage of Company's credit spread as observed in the CDS market.The percentage may be set at a level that causes the net present value(NPV) of the Total Fair Value Swap to be zero on the date as of whichthe Company and the Bank enter into the Total Fair Value Swap. Further,the credit spread portion of the floating rate may be capped to protectCompany against extreme increases in its credit spread. Bank mayperiodically re-calculate the credit-spread portion of the floating ratepayment under the Total Fair Value Swap based on the Company's creditspread as observed periodically in the CDS market.

Company may apply the fixed payments received from Bank under the TotalFair Value Swap to pay the fixed-rate coupon due in respect of itsbonds. Thus, by entering into the Total Fair Value Swap, Company hassynthetically converted its fixed-rate bond liabilities into a floatingrate liability in a manner that enables Company to benefit from lowershort-term interest rates and from lowering of Company's own creditspreads.

The economic effect of a Total Fair Value Swap may be achieved through acombination of existing financial instruments (such as interest rateswaps and credit default swaps). For example, the net effect of a TotalFair Value Swap between Company and Bank may be achieved with aninterest rate swap and a credit spread swap between the twocounterparties. In the interest rate swap, Company pays Bank at afloating rate on the notional principal in exchange for fixed-rateperiodic payments from Bank. In the credit spread swap, Company paysBank at a floating, yet capped, credit spread on the notional principalin exchange for fixed-rate periodic payments from Bank. A combination ofthe interest rate swap and the credit spread swap may produce a same orsimilar effect as a Total Fair Value Swap in accordance with embodimentsof the present invention. However, the present invention presents thesignificant advantage of achieving long-term funding at short-term ratesthrough the use of a single financial instrument. Any combination offinancial instruments that achieves an effect the same as or similar tothe present invention should be considered to be within the scope of thepresent invention.

For a better understanding of the Total Fair Value Swap, a more detailedexample is provided in FIGS. 2 and 3. FIG. 2 is a block diagramillustrating another exemplary Total Fair Value Swap transactionaccording to an embodiment of the present invention. FIG. 3 breaks downthe economics of the exemplary Total Fair Value Swap transaction shownin FIG. 2.

In this example, Company issues a 5-year bond at a fixed coupon rate of5.90% with a principal of $250M (M denotes million). The coupon rate maybe paid every three months.

Company and Bank may enter into a 5-year Total Fair Value Swap with anotional principal of $250M, wherein Company pays Bank at a floatingrate of LIBOR plus 74% of Company's 5-year credit spread in exchange forfixed payments from Bank at 5.90%. The credit spread portion of thefloating rate is capped at 8.50%, so that Company will never have to paymore than LIBOR plus the product of 74% and 8.50%.

From the spreadsheet in FIG. 3, it may be seen that part of the 5.90%fixed coupon rate is based on the 5-year U.S. Treasury Bond interestrate (4.08%) and a 5-year swap spread (0.47%). On the first day of thefirst 3-month period in this example, the 3-month LIBOR rate is 3.12%,and Company's 5-year credit spread is 1.35%. The credit spread portionof the floating rate is 74%×1.35%=0.999%. Company enjoys 1.78% ininterest payment savings during the first 3-month period. Thereafter,actual payments may vary according to fluctuations in the LIBOR rate andCompany's credit spread, both of which may be determined on the firstday of each 3-month period. However, the floating credit spread iscapped at 8.50%. That is, at any time during the 5-year tenor of theTotal Fair Value Swap, Company will pay no more than the product of 74%and 8.50% for the credit spread portion of the floating rate.

The Total Fair Value Swap transaction provides Company a number ofadvantages. For example, since a portion of the floating rate payableunder a Total Fair Value Swap is tied to the creditworthiness ofCompany, Company benefits from the lowering of its own credit spreads.At the same time, Company has increased its floating rate exposure andgenerated interest expense savings. Compared to a “plain vanilla”interest rate swap alone, Company is now able to monetize a steepinterest rate curve as well as a steep credit curve. Since the floatingcredit spread is capped at 8.50%, Company is protected in an extremedownside scenario.

Depending on Company's specific funding needs, a number of variationsmay be implemented for a Total Fair Value Swap. According to one variantof the Total Fair Value Swap, the fixed rate in the Total Fair ValueSwap as described above may be replaced with a floating rate that isreset on a periodic basis.

According to another variant of the Fair Value Swap, the credit spreadswap portion of the floating rate may be added to the floating rate legof an existing interest rate swap, transforming that interest rate swapinto a Total Fair Value Swap. Alternatively, either the interest rateportion or the credit spread portion of the floating rate leg of a TotalFair Value Swap may be terminated or have its rate changed at a latertime.

In a further variant of the Total Fair Value Swap, Company may purchasean option to enter into the transaction. Further, the Total Fair ValueSwap may contain an early termination option that permits Company orBank to terminate the transaction before its scheduled maturity date,either with or without compensating termination payments. In a furthervariant of the Total Fair Value Swap, the transaction as a whole or anypart thereof may terminate (or “knock out”) upon the occurrence of oneor more specified events (which may be called “credit events”) withrespect to Company or a third party.

A Total Fair Value Swap transaction in accordance with the presentinvention may be typically implemented in a computer-based system. Thecomputer-based system may comprise one or more processors and/orcomputers capable of data manipulation, logic operation and mathematicalcalculation. The system may also comprise one or more databases forstoring and managing interest rate data, credit spread data, and paymentdata, for example. The system may further comprise computer readablemedium having pricing model programs for evaluating a company's creditspread. In addition, a number of user interfaces may be provided for afinancial institution's personnel to model the swap pricing and tomonitor/adjust both the credit spread portion and interest rate portionof the floating rate payment as well as the fixed rate payment to bemade pursuant to the transaction. A counterparty in the Total Fair ValueSwap may also monitor the swap performance via one or more userinterfaces. The system may be implemented on computers or computernetworks.

Referring to FIG. 4, there is shown a block diagram illustrating anexemplary system 400 for facilitating one or more Total Fair Value Swaptransactions in accordance with an embodiment of the present invention.The system 400 may comprise a transaction management unit 402 which maybe a personal computer, a server or other similar computer equipment.The transaction management unit 402 may be coupled to a database 404that stores and maintains electronic records associated with one or moreTotal Fair Value Swap transactions. For each Total Fair Value Swap, theelectronic record may reflect the payment obligations of eachcounterparty, the notional principal, applicable interest rates, andalgorithm for determining payment amounts, for example. The transactionmanagement unit 402 may also be coupled to a network interface device406 through which counterparties (e.g., 41 and 42) to a Total Fair ValueSwap transaction may access the system 400. The transaction managementunit 402 may be further coupled to a rate monitoring unit 408 that iscapable of retrieving pricing information, via a communication link,from the credit default swap (CDS) market and/or other sources. Althoughthe various components in the system 400 are illustrated as beingseparate from one another, it should be noted that some or all of themmay be integrated within the same computing equipment and still performthe desired functions as described herein.

One counterparty (typically the “Fixed Rate Payer”) to a Total FairValue Swap transaction may assume the functions of monitoring the othercounterparty's credit spread and calculating floating payment amounts.In that case, the counterparty that does the monitoring and calculationmay manage the system 400 or have administrative privileges therein. Inthe case of multiple Total Fair Value Swap transactions beingfacilitated by the system 400, if the Fixed Rate Payers happen to be thesame bank, the bank may manage the system 400. If the multipletransactions involve different Fixed Rate Payers, the system 400 may bemanaged by a neutral party with respect to all the transactions.

In operation, an agreement for a Total Fair Value Swap transaction maybe reached between counterparties 41 and 42. For example, thecounterparty 41 may be the “Fixed Rate Payer” who will make fixedpayments to the counterparty 42 based on a reference interest rate thatmay or may not vary with time. The counterparty 42 may be the “FloatingRate Payer” who will make floating payments to the counterparty 41 basedat least in part on a credit spread associated with the counterparty 42.The agreement and all relevant records may be stored in the database404. At the beginning of each payment period, the rate monitoring unit408 may retrieve the counterparty 42's credit spread data from the CDSmarket and/or other relevant pricing data from other sources. With thecredit spread data and other pricing data, together with relevant datafrom the database 404, the transaction management unit 402 may calculatethe floating payment amount as well as the fixed payment amount. Aheadof payment due date(s), electronic reminders may be sent to thecounterparties 41 and 42 respectively. Payment transaction data may becollected from the counterparties, checked for compliance with theagreement, and stored in the database 404 for future reference. Thesystem 400 may be further configured to receive data associated with oneor more specified triggering events that may cause the Total Fair ValueSwap transaction to be terminated if predetermined conditions are met.

FIG. 5 is a flow chart illustrating an exemplary method for facilitatinga Total Fair Value Swap transaction in accordance with an embodiment ofthe present invention.

In step 502, two counterparties, Bank and Company, may enter into aTotal Fair Value Swap agreement, wherein Bank promises to make fixedpayments to Company based on a reference interest rate, and Companypromises to make floating payments to Bank based, at least in part, onCompany's credit spread. The agreement may be executed by the partiesand recorded in an electronic medium.

In step 504, payment channels may be set up for Bank and Company to makepayments to one another. Typically, electronic fund transfers (EFTs) maybe established so that electronic payments may be made automaticallyaccording to the Total Fair Value Swap agreement.

In step 506, typically at the beginning of a payment period (e.g.,beginning of every 3-month period), Bank may calculate the amount ofBank's fixed payment based on a fixed rate or a reference rate as agreedupon by the counterparties. Therefore, the fixed payments may be thesame amount for every payment period. Alternatively, Bank's paymentamount may vary with time, depending on the reference rate that may bereset or adjusted according to a market rate for the relevant paymentperiod. In this case, Bank's payment amount may be re-calculated foreach payment period.

In step 508, typically at the beginning of a payment period, Bank mayobserve Company's credit spread in a CDS market and calculate Company'sfloating payment amount based at least in part on its credit spread.According to some embodiments of the present invention, Company'sfloating payment amount may be determined based on a floating rate thatmay comprise an “interest rate portion” and a “credit spread portion.”The interest rate portion may be either fixed throughout the term of theTotal Fair Value Swap or may be reset on a periodic basis. The creditspread portion may be a percentage value that is the same as orproportionate to Company's credit spread. The credit spread portion maybe capped at a specified level so that Company is only exposed tolimited risk of a potential drop in its credit ratings. In oneembodiment, the floating rate is the sum of LIBOR rate and a percentageof Company's credit spread.

In step 510, both parties may be instructed to make their payments onspecified due date(s), and receipts of the payments may be confirmed andrecorded.

In step 512, it may be determined whether additional payments are to bemade. If so, the process may loop back to step 506 for the upcomingpayment period. If the last payments in the Total Fair Value Swap havebeen made, the Total Fair Value Swap may be terminated in step 514.

While the foregoing description includes many details and specificities,it is to be understood that these have been included for purposes ofexplanation only, and are not to be interpreted as limitations of thepresent invention. It will be apparent to those skilled in the art thatother modifications to the embodiments described above can be madewithout departing from the spirit and scope of the invention.Accordingly, such modifications are considered within the scope of theinvention as intended to be encompassed by the following claims andtheir legal equivalents.

1. A computer-based financial system for facilitating a Total Fair ValueSwap transaction between a first counterparty and a second counterparty,the system comprising: means for interfacing the first and secondcounterparties to the system and for accessing and monitoring dataassociated with the Total Fair Value Swap transaction; database meansfor storing and maintaining records related to the Total Fair Value Swaptransaction, the records reflecting the first counterparty's obligationto make one or more fixed payments to the second counterparty and thesecond counterparty's obligation to make one or more floating paymentsto the first counterparty, wherein the one or more fixed payments arebased on a reference interest rate and the one or more floating paymentsare based at least in part on a credit spread associated with the secondcounterparty; rate monitoring means implemented by a processor forderiving the credit spread from a credit default swap market and forperiodically determining the floating payment amount based at least inpart on the credit spread, the rate monitoring means being furtheroperable to determine the fixed payment amount by adjusting thereference interest rate on a periodic basis; and transaction managementmeans, operatively coupled to the means for interfacing, the databasemeans and the rate monitoring means, for tracking the one or more fixedpayments and the one or more floating payments.
 2. The system accordingto claim 1, wherein the reference interest rate is determined based onone or more interest rates selected from a group consisting of: LondonInter-Bank Offer Rate (LIBOR); prime interest rate; U.S. dollar swaprate; U.S. Treasury Bond rate; and federal funds rate.
 3. (canceled) 4.The system according to claim 1, wherein the floating payment amount isdetermined based on a floating rate comprising a first portion and asecond portion, wherein the first portion is determined based on aninterest rate unrelated to the credit spread, and wherein the secondportion is determined based on the credit spread.
 5. The systemaccording to claim 4, wherein the second portion is determined based ona predetermined percentage of the credit spread.
 6. The system accordingto claim 5, wherein the predetermined percentage causes a net presentvalue of the Total Fair Value Swap transaction to be zero at initiationof the Total Fair Value Swap transaction.
 7. The system according toclaim 1, wherein the transaction management means enforces a maximumamount for the one or more floating payments if the credit spread isabove a predetermined level.
 8. The system according to claim 1, whereinthe transaction management means cause at least a portion of the TotalFair Value Swap transaction to terminate upon one or more triggeringevent associated with the second counterparty or a third party.
 9. Acomputer-based financial system for facilitating a Total Fair Value Swaptransaction between a first counterparty and a second counterparty, thesystem comprising: a transaction management processor, a rate monitor,and a database, and a network interface device; the database maintainingan electronic record related to the Total Fair Value Swap transaction,the record reflecting the first counterparty's obligation to make one ormore fixed payments to the second counterparty and the secondcounterparty's obligation to make floating payments to the firstcounterparty; the transaction management processor being configured to:calculate an amount for each fixed payment based on a reference interestrate determined by the rate monitor, derive, based on informationretrieved by the rate monitor from a credit default swap market, acredit spread associated with the second counterparty at a specifiedtime prior to each floating payment, determine, based on each derivedcredit spread, an amount for each floating payment, such that the amountfor each determined floating payment varies when the derived creditspread of the second counterparty varies, and manage receipt of the oneor more fixed payments and the floating payments, where managingcomprises at least one of confirming, recording, and scheduling of thefixed and floating payments; wherein the transaction managementprocessor is coupled to the network interface device, the networkinterface device allowing at least one counterparty to access andmonitor data associated with the Total Fair Value Swap transaction. 10.(canceled)
 11. (canceled)
 12. (canceled)
 13. (canceled)
 14. (canceled)15. (canceled)
 16. (canceled)
 17. (canceled)
 18. (canceled) 19.(canceled)
 20. (canceled)
 21. The system of claim 1, wherein the firstcounterparty either manages the system or has administrative privilegesassociated therewith.
 22. The system of claim 21, wherein the firstcounterparty monitors the credit spread associated with the secondcounterparty.
 23. The system of claim 22, wherein the first counterpartymonitors the floating payment amount based upon data provided by therate monitoring means.
 24. The system of claim 1, wherein the secondcounterparty either manages the system or has administrative privilegesassociated therewith.
 25. The system of claim 24, wherein the secondcounterparty monitors the reference interest rate associated with thefirst counterparty.
 26. The system of claim 25, wherein the secondcounterparty monitors the fixed payment amount based upon data providedby the rate monitoring means.
 27. The system of claim 1, wherein two ormore distinct entities comprise the first counterparty to the Total FairValue Swap.
 28. The system of claim 27, wherein a third party eithermanages the system or has administrative privileges associatedtherewith.
 29. The system of claim 1, wherein two or more differententities comprise the second counterparty to the Total Fair Value Swap30. The system of claim 29, wherein a third party either manages thesystem or has administrative privileges associated therewith.